My Business Supply Chain
It seems like all we have been hearing about over the last few months is supply chain issues. These issues translate to the limited availability of products, parts, and even people. As a consumer, it can be incredibly frustrating to find that the things you need are hard to get. I don’t think any of us will ever forget the Toilet Paper Shortage of 2020! As a business owner, this very issue can be equally frustrating. After all, you can’t sell your goods or services if you don’t have the products and resources to create them. Considering that issue you may wonder, “Can I protect my business supply chain through good vendor contracts?” Let’s find out.
What exactly is a Supply Chain?
The start to any effective contract term is a clear definition. A supply chain is quite literally the path or chain by which you connect your business with the vendors, suppliers, and products needed to deliver goods and services to them.
This diagram shares the basics of the average supply chain…
- Your business defines the goods/services that are being provided to your clients.
- Raw materials are needed to create those goods:
- Components that make up a particular good
- Systems needed to support certain services
- Pre-manufactured wholesale products
- Vendors are engaged to provide you with the raw materials you need.
- Manufacturing takes place, if applicable.
- Goods and services are shipped to you to prepare for your clients and customers.
- Your customers purchase what you offer.
This entire process is time-sensitive. The longer it takes for you to receive the materials you need, the longer it will take for you to have your goods and services ready for your clients… and those delays lead to diminished revenue and hits to your profit margins.
How do I protect my business supply chain?
Your vendor management process is key. First, you need to identify the vendors who provide key resources and support to your business. These businesses can be sourced in a variety of ways: trade shows, online searches, word of mouth, industry publications, just to name a few. Once you have determined who your suppliers will be, the next step is to negotiate your purchasing terms and get your contract in place.
When building your supplier agreements, there are considerations that should be kept in mind. Is this a single transaction vendor – only providing service or products once, with no ongoing relationship? Is this vendor going to be part of your business from now on? Would their ability to support your business pose a risk of disruption in the case of failure on their part?
Each of these considerations will guide you towards the right type of contract and the terms needed to protect you. Service level agreements (SLAs for short), inventory guarantees, shipping, and delivery methods… each of these is a term that must be discussed in detail and negotiated carefully. Clearly stated mutual obligations and a common understanding of performance are required for effective and protective agreements. After all, the most effective supplier agreement is about more than just how much you will pay for the goods and services that will be provided to your business.
Always keep your customer in mind when signing on with a new vendor. Their ability to deliver directly impacts YOU.
Most importantly, don’t enter into those key agreements alone. Every contract that affects your business merits a review with your legal partner. Your attorney is not just a pretty face! They are on your team to protect you from the risks and downsides of being left unsupported by your vendors.
Need help deciding on your next steps? Let’s connect and set you up for true success. Your clients are depending on you!
Disclaimer: Please note that this blog is informational only and is not meant to provide legal advice. Each situation is different and requires informed care and decisions. Please seek guidance from a licensed attorney before proceeding with your transaction.